Is the Housing Market Finally Slowing Down?

Home Sold Sign w/ Realtor
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The recent real estate market has been interesting, creating a challenging market for buyers and a golden opportunity for sellers; however, recent changes have many wondering-is the housing market finally slowing down?

Dropping Home Sales & Competing Offers 

As inflation rates push higher, buyers have responded. The sale of existing homes experienced a 3.4% decrease between April and May of 2022 and were down 8.6%, when compared to May of 2021. Meanwhile, the sale of new builds dropped 6%, on an annual basis. It’s not just a decrease in home sales; Redfin has also reported a reduction in competing offers, with just 60.7% of offers written by their agents facing competing offers, down from 67.4% around a year ago. Not only are there less competing offers but buyers are also backing out of deals, on a nationwide scale 60,000 home-purchase agreements fell through in June, almost the highest percentage on record. The reasoning behind this is the current market state, giving buyers more room to negotiate and the rising mortgage rates forcing buyers to back out.

Rising Mortgage Rates

Another aspect buyers are now dealing with is that mortgage rates have spiked from 3.11% to 5.25% in the past five months to control rising inflation and are now up to 5.51% at the time of writing this post; experts expect this number to range from 5 to 7% the remainder of 2022. The rising rates have affected the housing market, with the number of mortgage applications dropping by 18% when compared to last year. These high rates have turned some buyers away, as they simply cannot afford to buy a house.¬†In fact, “today’s average monthly mortgage payment of $1,700 is nearly $500 more than last year” and is more than double the amount a homeowner would expect to pay a decade ago. When combined with the high listing price of homes, these higher rates reduce the fervent market we’ve become accustomed to. The rising rates also have potential sellers deciding not to, or risk losing out on low mortgage monthly payments.

Are We Headed Towards a Crash?

However, that’s not to say that we’re headed towards a real estate market crash-at least not according to most experts. For example, Bill McBride an analyst, sees the current market as very similar to 1980; in a bid to combat the inflation of the 1970s, interest rates rose, and the housing market plateaued. McBride sees the potential for another stall or plateau as the worst-case scenario in the current market. Meanwhile, Fannie May predicts a modest recession will likely hit in the second half of 2023, brought on by multiple factors, including rapidly rising interest rates, food prices, and surging house prices.

Even if the statistics show a slow-down, it doesn’t equate to affordability. The higher mortgage rates and the high prices of homes will make purchasing a home unaffordable for many; however, there may be some changes on the horizon. As more people are priced out of this current market, and interest rates remain high, the chief economist for Comerica Bank predicts that price increases will slow during the remainder of 2022, while others believe that mortgage rates are close to peaking.

Many experts are seeing this period in the housing market as a correction, not a crash. However, with continued low inventory (as building is 30% more expensive than it was a year ago) the market is projected to continue to be good for sellers and not so good for buyers. Although there has been a cool down, it has been at the expense of buyers, with many being pushed out by high prices and now by mortgage rates.

So. . . What’s Actually Happening? Is the Housing Market Slowing Down?

Well, even with expert opinions and predictions, the state of the market is largely unpredictable, and opinions split. Additionally, the real estate market is different in every location. The following is some of our agents’ thoughts of whether the housing market is slowing down in the Oconomowoc area . . .

There’s still a large pool of buyers and a lack of inventory in our area. The rising interest rates have taken some buyers out of the running; I am seeing homes stick around a bit longer, but it is still a good time to be a seller.

“The market is experiencing a correction. Buyers are moving to the sidelines, due to higher interest rates and a lack of inventory and waiting for the market to become more favorable to their side of the transaction. For sellers in the area, they’ll start to see the effects of this change, with fewer offers and less competition.”

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